Banks using ineffective tools to combat unethical behaviour

8 May 2019

Australia's big four banks are spending big money on frameworks to combat risky conduct and unethical behaviour that "simply don't work", according to the author of a new report.

Associate Professor Alessandra Capezio from The Australian National University (ANU) said banks were investing in ineffective interventions that don't reduce misconduct and unethical behaviour.

"When it comes to stopping unethical behaviour, the continued investment in elaborate 'risk culture frameworks and measures' is like hitting a nail with a cucumber. It's the wrong tool for the job," said Associate Professor Capezio.

"There is no agreed definition of what a 'risk culture' is, let alone how to measure it. Our report shows there is no trustworthy evidence that managing your 'risk culture' has any worthwhile effect on reducing unethical behaviour."

The report's key evidence-based recommendations include:

  • Leaders showing they are ethical in their day-to-day behaviour and decision-making.
  • Making people aware of the impact and potential harm their decisions have on different stakeholders.
  • Reducing people's exposure to 'socially contagious' unethical behaviour.
  • Encouraging and enabling people to withstand social pressure to act unethically.
  • Consistently enforcing a code of ethics and corporate values relating to ethical conduct - their mere existence or inconsistent use make them ineffective.

Associate Professor Capezio is urging banks to take a more evidence-based approach to their systems, focusing on risk factors that drive misconduct and removing "the guesswork".

"Unethical behaviour is complex and it is socially contagious," she said. "What makes it harder to stop unethical behaviour is that we are fighting natural human tendencies to justify bad behaviour.

"Our report shows unethical behaviour needs to be addressed at the individual, organisational and situational levels to be effective. In other words, we need to tackle rotten apples, bad barrels and sticky situations. At the moment this isn't happening."  

The report also highlights the importance of leadership and transparent decision-making.

"Employees take cues from how leaders behave," Associate Professor Capezio said. "If employees see their leaders acting unethically, they see that as a licence to do so themselves.

"There needs to be more transparency in their decision-making, so employees can see the reasons behind corporate policy."

Associate Professor Capezio is calling for all banks to appoint a Chief People and Ethics Officer charged with overseeing organisation behaviour.

"I would also like to see evidence-based training in ethical decision making so people understand the implications of their decisions," Associate Professor Capezio said.

"You need people to think about the potential for harm to customers and stakeholders as a result of unethical behaviour. People need to put themselves in the shoes of their potential victims before they act."

The Rotten apples, bad barrels and sticky situations report has been jointly produced by ANU, the UK Chartered Institute of Personnel and Development and the Centre for Evidence-Based Management in the Netherlands.